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Less is More: JCP Shareholders Need a HUGE Miss Tonight

Less is More: JCP Shareholders Need a HUGE Miss Tonight

Lock up the dogs and hide the children. Something wicked will this way come tonight when JC Penney (JCP) allows its earnings to slither out of Dallas. Unlike many earnings reports there isn't a lot of suspense on this one: the company is going to miss and it's going to be ugly. Official estimates are for a loss of 74-cents on revenues of $2.74b compared to a 75-cent loss on $3.2 billion for the same period last year.

How individual investors feel about the results depends entirely on their entry price. JCP stock has risen almost 25% in the last month in a knee-jerk burst of enthusiasm after the firing of former CEO Ron Johnson, an investment by the Soros group, and a $1.75 billion debt deal that ensured the retailer's survival for at least another year.

Those are the good things. On the downside is everything else about the company. The current CEO is the guy Johnson replaced. That means, unlike new bosses who come in to "clean house," Myron "Mike" Ullman actually has a vested interest in Penney's former business model. That being the case, Wall Street's reaction to tonight's earnings report isn't about economics but vision. Specifically, how does Ullman plan to reassemble a company stuck halfway between a radical overhaul that's left stores literally in shambles.

Brian Sozzi of Belus Capital Advisors has been sneaking around the stores taking videos lately and he doesn't like what he sees. "I'm seeing a hodge podge of strategies," frets Sozzi. The stores are an amalgamation of Johnson's hipster colors and lack of discounts coupled with Ullman's hyper-promotional brand of retailing. No one knows what to make of the stores at this point, including management.

What could keep the stock's mojo moving? Start with a strategy. Sozzi says JCP has no choice but to accept at least part of Johnson's vision. Ten million square feet of JC Penney stores will be under construction this year. Ullman is going to have to reconcile his distaste for what Johnson was doing with the fact that he can't go back in time or restore the chain to the dilapidated mess it was before he left.

As for the stock, less is probably more tonight. Ullman will most likely get a pass as far as last quarter and the balance of this year. JCP has already apologized to customers and struck an uneasy peace with Wall Street. If Ullman's smart he'll keep his honeymoon going as long as possible by keeping it vague during the Q & A.